Market Shrugs Off CFTC Lawsuit Against Binance

A U.S. regulator took aim at the biggest target in crypto Monday. Investors don’t seem to care.

The value of crypto locked in the Binance-built BNB blockchain has dropped 2.7%, while BNB, the token that powers that blockchain, has declined 4.3% since news broke on Monday that the Commodity Futures Trading Commission had sued Binance, its founder and a former executive. Those declines just barely outpaced a broader drop in crypto markets.

The lack of market reaction shows traders are betting the CFTC’s actions won’t disrupt Binance’s operations. The lawsuit against crypto’s largest exchange is the latest in a series of regulatory actions that have prompted speculation U.S. regulators are lawmakers are carrying out a coordinated effort against the cryptocurrency industry.

Meanwhile, outflows from Binance’s centralized exchange have been muted too. Users withdrew about $1.2B from the exchange on Monday. While substantial, that figure has been topped on two separate occasions this month alone, and is less than 2% of the exchange’s holdings, per Defi Llama.

Binance Inflos and OUtflows Source: DeFi Llama

Binance has made little effort to screen customers during their account sign-up process, allowing criminals and Americans to trade on its platform, according to the CFTC lawsuit.

Survive the Lawsuit

In a statement, Zhao denied the charges. And analysts are confident Binance will survive the CFTC lawsuit.

“Much ado about nothing,” Jeff Dorman, the chief investment officer at crypto investment firm Arca, wrote on Twitter. “Irrelevant for Binance or overall market … They didn’t lose customer money nor get accused of meaningful illicit transactions.”

Potential Criminal Investigation

But some attorneys flagged allegations within the complaint that could become fodder for a criminal investigation led by the Department of Justice. Details in the lawsuit suggest Binance suspected its platform had been used by criminals and entities subject to U.S. sanctions.

“The CFTC actually has a fairly narrowly tailored complaint IMO and isn’t really seeking to establish new law,” Collins Belton, managing partner at Brookwood P.C., wrote. “But, like I said, I would be…very surprised if the DOJ isn’t closely behind given these AML/sanctions allegations, so, steel yourselves.”

Profits Over Law

In a 74-page complaint, the Commodity Futures Trading Commission said it was suing Zhao, three of the myriad entities “that operate the Binance platform,” and a former Binance executive. Among other things, the CFTC is seeking to fine Binance; permanently ban the company and its employees from trading commodities in the US; and claw back money Binance made from customers based in the U.S.

“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,” Gretchen Lowe, the CFTC’s chief counsel, said in a prepared statement.
Prominent crypto attorney Gabriel Shapiro called the CFTC’s proposed penalties “aggressive and potentially destructive,” but acknowledged there was no guarantee a court would grant those penalties if Binance were found guilty.